Correlation Between International Equity and International Growth
Can any of the company-specific risk be diversified away by investing in both International Equity and International Growth at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining International Equity and International Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Equity Portfolio and International Growth Fund, you can compare the effects of market volatilities on International Equity and International Growth and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in International Equity with a short position of International Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and International Growth.
Diversification Opportunities for International Equity and International Growth
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between International and International is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Portfolio and International Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Growth and International Equity is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on International Equity Portfolio are associated (or correlated) with International Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Growth has no effect on the direction of International Equity i.e., International Equity and International Growth go up and down completely randomly.
Pair Corralation between International Equity and International Growth
Assuming the 90 days horizon International Equity Portfolio is expected to generate 0.97 times more return on investment than International Growth. However, International Equity Portfolio is 1.03 times less risky than International Growth. It trades about 0.04 of its potential returns per unit of risk. International Growth Fund is currently generating about 0.03 per unit of risk. If you would invest 1,168 in International Equity Portfolio on August 24, 2024 and sell it today you would earn a total of 185.00 from holding International Equity Portfolio or generate 15.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Equity Portfolio vs. International Growth Fund
Performance |
| Timeline |
| International Equity |
| International Growth |
International Equity and International Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Equity and International Growth
The main advantage of trading using opposite International Equity and International Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity position performs unexpectedly, International Growth can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in International Growth will offset losses from the drop in International Growth's long position.| International Equity vs. Artisan Developing World | International Equity vs. Artisan High Income | International Equity vs. HUMANA INC | International Equity vs. Aquagold International |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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